GOP Unveils a 'Plan B' if Budget Talks Fail

House Leaders' Proposal, a Tactical Move Unlikely to Pass Senate, Would Let Tax Rates Rise on Income Over $1 Million

By

Janet Hook,

Carol E. Lee and

Corey Boles

Updated Dec. 19, 2012 3:15 a.m. ET

Despite progress toward agreement on a budget deal with the White House, House Republican leaders on Tuesday proposed a backup plan to prevent most Americans from facing an income-tax increase if negotiations collapse.

The "Plan B," which would allow tax rates to rise only for income over $1 million, was given little chance of passing Congress, because it faced opposition from Democrats broadly and some Republicans who oppose all tax increases.

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House Speaker John Boehner and President Barack Obama face challenges selling a deal to their parties.
Zuma Press

Instead, its introduction was seen by members of both parties as a largely tactical maneuver by House Speaker John Boehner (R., Ohio). GOP officials said his goal was to step up pressure on President Barack Obama to make further concessions in budget talks, and also to send a message to the GOP rank and file about how much more they could accomplish by securing a broader budget agreement that cuts spending as well as raises taxes.

Both leaders face perils as they enter what could be the final stages of high-stakes negotiations to avoid the "fiscal cliff" of higher taxes and spending cuts in early January. Mr. Obama will have to deal with liberals unhappy about entitlement cuts. Mr. Boehner faces a potential backlash from Republicans for contemplating tax-rate increases—both in his talks with the White House and in Plan B.

House Speaker John Boehner (R., Ohio) addresses the media in a press conference about the 'fiscal cliff,' in which he says while he is hopeful for a deal with the White House, he must 'move to plan B.' Photo: Getty Images.

House Speaker John Boehner (R., Ohio) addresses questions from the media after a press conference in which he said House Republicans are preparing 'plan B' if the White House and Congress can't make a deal on the 'fiscal cliff.' Photo: Getty Images.

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In talks with members, Mr. Boehner urged them to see his talks with Mr. Obama as aimed not at raising taxes on some, but at blocking tax increases for most that would result from the expiration of Bush-era tax cuts.

The prospects for a Boehner-Obama deal have brightened by the day, with both sides making major concessions to narrow their differences on raising taxes, cutting federal spending, increasing the federal debt limit and extending a host of other expiring tax and spending policies.

Mr. Boehner abandoned his long-standing refusal to entertain tax-rate increases, proposing to allow rates to rise for income over $1 million. Mr. Obama has dropped his long-standing campaign promise to raise taxes on income over $250,000, moving the threshold to $400,000 in an offer to Mr. Boehner on Monday.

That narrowed the difference between the two men in the overall tax revenues they were seeking to raise in the deal: Mr. Boehner was proposing $1 trillion, Mr. Obama between $1.2 trillion and $1.3 trillion.

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President Barack Obama
Agence France Presse/Getty Images

"They seem to be so close that I'd be surprised if it fell apart," Sen. Charles Schumer (D., N.Y.), a member of the Senate Democratic leadership team, said on a conference call with reporters. "I think the likelihood is we will get an agreement."

Republicans have found much to object to in the latest Obama proposal, because they believe it doesn't cut spending enough and raises taxes too much. GOP officials also oppose an element of Mr. Obama's latest proposal that would raise the federal debt limit enough to last two years. Mr. Boehner has offered to raise it only for one year, and only if accompanied by spending cuts of a comparable magnitude.

Another bone of contention is Mr. Obama's continued insistence on increased spending for infrastructure projects designed to stimulate the economy.

Democrats say Mr. Boehner's proposal doesn't raise enough revenue for deficit reduction and cuts spending too much in a time of economic weakness.

Discussion of the latest Obama offer was eclipsed somewhat Tuesday by the introduction of the GOP backup plan. The bill, which is expected to come to a House vote Thursday, would do nothing to block the $110 billion in spending cuts that are due to take effect Jan. 2 in defense and domestic programs—a major part of the fiscal cliff that members of both parties have been hoping to avert.

However, GOP aides said the bill would include provisions to address two other looming year-end problems.

The bill would include an extension of a provision to protect millions of middle-class Americans from paying the Alternative Minimum tax, a levy initially designed to affect only the wealthiest Americans but that was not indexed for inflation. Congress has passed a series of stopgap measures to keep that from hitting couples with moderate incomes, and the "Plan B" bill would extend that protection permanently.

The bill also would block an impending increase in the estate tax and extend the current rate of 35% on estates valued at more than $5.12 million. Without action, the estate tax would jump to 55% on all estates valued at more $1 million on Jan. 1.

White House Press Secretary Jay Carney dismissed the backup plan as something that "can't pass the Senate and therefore will not protect middle-class families, and does little to address our fiscal challenges with zero spending cuts."

House Democratic Whip Steny Hoyer (D., Md.) called it a "a political ploy," and said he would urge House Democrats to vote against it. Some Democratic officials said that raised questions about whether GOP leaders could round up enough votes to pass the bill even in the House.

Meanwhile, some Republicans are poised to oppose any plan to raise tax rates, including Mr. Boehner's backup option. "Once you cross that line and say it's OK for some people's taxes to go up, I think it's a mistake for the Republican Party," said Rep. Jim Jordan (R., Ohio), departing chairman of the Republican Study Committee, an influential group of House conservatives.

Former Minnesota Gov. Tim Pawlenty, now in his new role as president of the Financial Services Roundtable, discusses the changes he'd like to see to Dodd-Frank and how he sees the ongoing fiscal cliff stand-off.

Others are beginning to reluctantly concede that a tax increase on millionaires may be their best option. "I hate it. I hate it," Rep. Jason Chaffetz (R., Utah) said of letting upper-income taxes go up. "But I'm trying to be reasonable."

The administration Tuesday worked to keep Democrats from breaking ranks as Mr. Obama negotiates a deal that already includes policy proposals that members of his party oppose. White House congressional liaison Rob Nabors met with House and Senate Democrats in the Capitol to explain the president's offer and calm rising anxieties.

The main point of contention between the president and Hill Democrats is the GOP's proposed change to a formula for calculating cost-of-living increases in Social Security. The White House defended Mr. Obama's acceptance of the idea as one part of a deal. That was true, too, of his retreat from insisting that tax rates increase on households making $250,000 a year.

Mr. Obama's decision to raise the income threshold to $400,000 a year reflects his "willingness to move towards the Republicans in order to achieve a deal but do so in a way that maintains his principles," Mr. Carney said.

White House officials also spent time on Tuesday reaching out to business leaders to try to gain their support for the president's latest offer. In addition, officials told supporters on a call that Mr. Obama was unlikely to move much further from the positions in his current offer.

Corrections & Amplifications The estate-tax rate is currently 35% charged on estates valued at more than $5.12 million. An earlier version of this article incorrectly said the rate was 45% on estates valued at more than $5 million.

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